Back in 2010, a lower court ruled that YouTube was protected from liability for what its users do because of the company's compliance with DMCA procedures. Under the Digital Millenium Copyright Act, YouTube must remove offending videos when they're notified by copyright holders that this content exists. According to the new ruling, YouTube can't just turn a blind eye and hide behind DMCA:

A reasonable jury could find that YouTube had actual knowledge or awareness of specific infringing activity on its website," a two-judge panel said in a 39-page decision.

The outcome of the case will hinge entirely on whether YouTube "knew" that all of this copyrighted material was out there and what "knowing" actually means. While YouTube is very good about taking down material when asked to do so, Viacom is likely to argue the company should take a more active roll in identifying content for removal. [Businessweek]